law office of michelle adams

What are Benefits of Putting Money into a Trust?

Legacy Planning: The Ultimate Gift

Book an Initial Call

What are Benefits of Putting Money into a Trust?

June 15, 2022 •  Law Office of Michelle Adams
Grantor retained annuity trusts, intentionally defective grantor trusts, spousal lifetime access trusts, oh my! If you overhear two estate planning attorneys at a coffee shop, it would not be unreasonable to think that all clients have estate plans filled with trusts.

For the average person, knowing how a revocable trust, irrevocable trust and testamentary trust work will help you start thinking of how a trust might help achieve your estate planning goals. A recent article from The Street, “3 Powerful Types of Trusts that Can Work for You,” provides a good foundation.

The revocable trust is one of the more flexible trusts. The person who creates the trust can change anything about the trust at any time. You may add or remove assets, beneficiaries or sell property owned by the trust. Most people who create these trusts, grantors, name themselves as the trustee, allowing themselves to use their property, even though it is owned in the trust.

A revocable trust needs to have a successor trustee to manage the assets in the trust for when the grantor dies or becomes incapacitated. The transfer of ownership of the trust and its assets from the grantor to the successor trustee is a way to protect assets in case of disability.

At death, a revocable trust becomes an irrevocable trust, which cannot be easily revoked or changed. The successor trustee follows the instructions in the trust document to manage assets and distribute assets.

The revocable trust provides flexibility. However, assets in a revocable trust are considered part of the taxable estate, which means they are subject to estate taxes (both federal and state) when the owner dies. A revocable trust does not offer any protection against creditors, nor will it shield assets from lawsuits.

If the revocable trust’s owner has any debts or legal settlements when they die, the court could award funds from the value of the trust and beneficiaries will only receive what’s left.

A testamentary trust is a trust created in connection with instructions contained in a last will and testament. A good example is a trust for a child outlining when assets will be distributed to them by the trustee and for what purposes the trustee is permitted to make the distribution. Funds in this kind of trust are usually used for health, education, maintenance and supports, often referred to as “HEMS.”

For families with relatively modest estates, a trust can be a valuable tool to protect children’s futures. Assets held in trust for the lifetime of a child are protected in the event of the child’s going through a divorce because the child’s inheritance is not subject to equitable distribution when not comingled.

Many people buy life insurance for their families, but they don’t always know that proceeds from the life insurance policy may be subject to estate taxes. An insurance trust, known as an ILIT (Irrevocable Life Insurance Trust) is a smart way to remove life insurance from your taxable estate.

Whether you can have an ILIT depends on policy ownership at the time of the insured’s death. In most cases, the insurance trust must be the owner and the insurance trust must be named as the beneficiary. If the trust is not drafted before the application for and purchase of the life insurance policy, it may be possible to transfer an existing policy to the trust. However, if this is done after the purchase, there may be some challenges and requirements. The owner must live more than three years after the transfer for the policy proceeds to be removed from the taxable estate.

Trusts may seem complex and overwhelming. However, an estate planning attorney will draft them properly and make sure that they are used appropriately to protect your assets and your family. Please contact our Denver estate planning firm at (720) 740-4463 to have an experienced attorney walk you through this process!

Reference: The Street (May 13, 2022) “3 Powerful Types of Trusts that Can Work for You”

Speak With Michelle
Book an Initial Call
Schedule an available time to speak with Michelle Adams, Esq. I look forward to meeting with you!
Book an Initial Call
Stay Informed
Join Our eNewsletter
Stay informed and updated by subscribing to our eNewsletter!
Subscribe Now!
Educational Resource
Order a Copy of "7 Gifts for a Lasting Legacy"
Regardless of your income level or celebrity status, everyone will leave a legacy. And author Michelle Adams helps you to be intentional about building a strong family legacy. Order a copy today!
Order Now
KEY NOTE SPEAKING / WORKSHOPS
Keynote Workshop
We frequently offer workshops to parent groups, faith-based organizations, schools and companies.
Workshop Request
Law Office of Michelle Adams

2373 Central Park Blvd, Suite 100
Denver, Colorado 80238

Get Directions
Integrity Marketing Solutions - Estate Planning Marketing
Powered by
magnifiercrosschevron-down